A living trust, also known as a revocable trust or inter vivos trust, is a legal entity created during the lifetime of the person establishing it (known as the grantor or settlor) to manage their assets during their lifetime and distribute them to beneficiaries after their death.
Here’s how it generally works:
- Creation: The grantor creates a trust document, which outlines the terms and conditions of the trust, designates a trustee (who manages the trust assets), and specifies the beneficiaries who will receive the assets.
- Funding: The grantor transfers ownership of their assets (such as real estate, investments, and bank accounts) into the trust, which is called funding the trust.
- Management: While the grantor is alive and mentally competent, they typically serve as both the trustee and beneficiary of the trust, maintaining full control over the assets. This allows them to manage the assets as they see fit, buy, sell, or remove assets from the trust as needed.
- Succession: Upon the grantor’s death or incapacitation, the trust becomes irrevocable, and control passes to a successor trustee named in the trust document. The successor trustee follows the instructions outlined in the trust document to distribute the assets to the designated beneficiaries without probate court involvement.
Living trusts offer several benefits, including avoiding probate, providing privacy, allowing for smooth asset management during incapacity, and providing flexibility in estate planning. However, they may involve initial costs and ongoing administrative responsibilities. Consulting with an attorney experienced in estate planning can help determine if a living trust is suitable for your situation.
